Government Imposing A Price Ceiling

demand for a good is high and the supply is low, the price increases. At some point people’s

A price ceiling is a government-levied maximum rate for a product or good. When a price ceiling inflicted by the government is more than retail equilibrium price, the price ceiling has no effect on the market or economy. This is because it does not obstruct supply, nor does it boost the demand. A different effect transpires if the government imposes a price ceiling below the market’s equilibrium rate. The suppliers will no longer be capable of charging the price that the market mandates, but they are required to meet the maximum price determined by the government’s price ceiling. When the demand rises beyond the capability to supply, shortages ensue. This leads to rationing of the product, causing some consumers to experience longer lines to obtain the product. In a worse case, there would be no products available for the consumer to buy.

The principal microeconomic issue at work is supply and demand. The author invokes a number of economic theorists (both liberal and conservative) who endorse price gouging out of a belief that it is simply the natural manifestation of a capitalist society that relies on supply and demand. There is a belief that preventing price gouging allows consumers to act with little consequence for their actions. According to this line of thinking, a business is well within its rights to raise prices because they should respond to public demand; at other times, there is little demand, so they are wise to take advantage when there is significant demand. Moreover, economic theorists have argued that price-gouging is positive because it makes people question whether the item they are considering purchasing

However, when the equilibrium price is beyond the expectation of a fair market value, for reasons of political or social concerns governments will intervene in the market and establish limits on such things as wages, apartment rents, electricity, or agricultural commodities. Government uses price ceilings and price floors to keep prices below or above market equilibrium. (Stone, 2012, page 68)

Price fixing and exclusive dealings are harmful for consumers and small businesses trying to compete with large businesses. The issues with price fixing is that the consumers have to buy an item for a certain price. There is no supply and demand, along with the fact that the prices can fluctuate without any certain pattern. As the prices become higher, the company get

A price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low (Taylor, B. 2006).

b.) There will be a shortage created. Initially the public might be happy about the price ceiling, but soon after the sellers will begin to ration the graham crackers based on other factors since the one most willing to pay will no longer be a factor. Also, this might cause consumers to stand in long lines in order to be able to purchase the graham crackers, but since there are not enough graham crackers supplied, not everyone will be able to purchase the graham crackers. In the end, producers will move on to produce other products that are more profitable than graham crackers, worsening the shortage.

The legal minimum and maximum prices for goods and services are implemented by governments, in an effort to be able to manage the economy by direct intervention. Price ceilings and price floors are two types of price controls. The legal maximum of price for a good or service is a price ceiling and the legal minimum price of good or service is the price floor. The government may impose both a price ceiling and a price floor but typically only selects one for a specific good or service. Prices are formed by a free market when there is a balance between supply and demand of the good or service. When the legal price is different than that of the market price it will create either an excess in supply or an excess in demand. When a price ceiling is imposed it will create shortages, while having no effect on the quantity supplied. Shortages of goods and services cause consumers to compete robustly over the restricted supply. The shortages arrive from suppliers limiting the supply of goods and services due to the price ceiling, not allowing them to make a profit. The opposite holds true with price floors. Having a price floor creates an excess of goods and services and that allows suppliers to be more agreeable to supply. When price ceilings or price floors are implemented, this can lead to the creation of black markets and inefficient allocation to

55). Products priced below equilibrium price cause a shortage of supply because of an increase in demand for lower priced assets (McConnell, Brue, & Flynn, 2009, p. 55).

The Brazilian acai berry has been a food staple for low income families for years and a cultural symbol for generations. This berry is vital in Brazil, where it is farmed and, until recently had a relatively small market. However, after an Oprah interview the demand for acai has become an international affair. The rising demand has created a free market; however the once inexpensive food staple has become too expensive for the low income families. This report will analyse the current markets advantages and disadvantages, followed by two possible government intervention models. The examined interventions will be export tariff and price ceiling.

A price ceiling set below the equilibrium price means that the quantity supplied ____ the quantity demanded so that a ____ exists.

It implies that the monopolist will incur a loss. The loss is equivalent to the below shaded rectangle. Imposing of the price ceiling indicates that the monopolist will incur losses and will eventually exit the market in the long run (Lehdonvirta, & Castronova, 2015).

If the government puts in a price ceiling, then the quantity demanded will exceed the quantity supplied, meaning that not enough goods or services will be supplied to satisfy demand. This situation is called a shortage. Because price ceilings are installed in the interests of

Generally a firm set “prices to attract new customers or profitably retain existing ones”(300). A firm could set prices low so that competition cannot enter the market or set prices at competitor’s level to keep the market constant. In the Trader’s Joe example, all of their prices are exceptionally low for high priced things even Trader Joe’s products can’t even be found anywhere else. This helps to eliminate competitors in an extraordinary

Political factors impact the agricultural sector in factors relating to regulation, distribution, and consumption of foods in a given country. Government policies and imposed regulations have a direct effect on nutritional choices that a consumer makes, and this, in turn, affects the agriculture market (KPMG, 2012). For example, policies governing food prices or the amount of information that a consumer will receive affects the choice of the consumer. Food regulation and safety measures implemented influence the supply of food products, and ultimately determines the market choice for consumers (KPMG, 2012). Economic factors have a direct effect on the agricultural industry. On one hand, the input cost such as the price of seeds, fertilizers, and cost of labor affect the productivity of the industry. The economic status of a country also affects the industry’s productivity. For example, in developing countries, the agricultural sector is less developed owing to limited resource input and poor infrastructure (KPMG, 2012).